week 2 - val process + direct comparison

Question 1

define property valuation

Answer 1

The art and science of estimating the value for a specific purpose of a particular interest in property at a particular moment in time, taking into account all the features of the property and also considering all the underlying economic factors of the market”

Question 2

value estimated in valuations?

Answer 2

Mainly the market value
Other types of valuations
Investment value – value to a particular investor / purchaser

Assessed value – value placed on a property for tax purposes

Insurable value – the cost of replacing the structure in the event of a loss

Salvage value – disposal value of a property

Question 3

define market value

Answer 3

is the estimated amount for which an asset should exchange on the date of valuation between a willing buyer and willing seller in an arm’s length transaction after property marketing wherein parties had each acted knowledgably, prudently and without compulsion”

Common assumptions
An informed buyer and seller
Rational or prudent behaviour by both buyer and seller
No undue pressure on either party
A reasonable time is allowed to find a buyer

Question 4

valuation process

Answer 4

see slide (gracie boff)

1. determine the problem
2. scope of work determination
3. data collection and description
4. market and markability analysis
5. highest and best use analysis
6. site valuation
7. estimate value using more than one approach:
   - sales comparison
   - capitalisation
   - cost approach
8. Reconciliation
9. Establish value conclusion

Question 5

explain defining the problem

Answer 5

Clients
The intended use of the valuation (e.g. Purchasing decisions, Mortgage, Compensation, Financial reporting etc)
Define the type of value estimated
Effective date of valuation (current, retrospective, prospective)
Real property interest to be valued (e.g. freehold, leased fee or leasehold, whole interest, partial or fractional interest etc)
Limiting conditions and / or special assumptions

Question 6

explain scope of work determination

Answer 6

Acceptable if leads to credible assignment results, is consistent with the expectations of regularly intended users, and the actions of the valuer’s peers would do for similar assignment.

To identify the type and extent of research and analysis in an assignment.

Question 7

Data Collection and analysis

Answer 7

Specific Data:

• Details about property being appraised
• details on comparable sales /rental information
• details of local market characteristics

General Data:
-General economic, social factors affecting the property market.

specific data sources:
Information about the actual property
Physical inspection
Information from the owners / tenants
 Public records (e.g. local council) 

Information about comparable sales
Properties listed for sale / rent
Property databases (e.g. RP data)
Market participants (e.g. real estate agents, property managers)

Question 8

general data sources may include

Answer 8

International and national economic trends
Department of Foreign Affairs and Trade 
Reserve Bank of Australia 
Demographics
Australian Bureau of Statistics 
Real estate associations
Australian property institute
Property Council of Australia
Private sources (e.g. banks

Question 9

explain market analysis

Answer 9

Economic trends affecting property markets
International economic trends
International economic trends have significant effects on local economies and property markets (e.g. Global Financial Crisis, 2007)

National and regional economic trends
The state of national and regional economy is basic to any valuation
General economy performance
Finance market performance

Question 10

hbu example

Answer 10

bordeaux booty

For example, a residential property has a value as a house of $800,000, and the H&BU of the land as vacant is commercial property development. The value of the land used as a commercial lot is $850,000 , and the total cost of demolishing the house and prepare the site is $25,000.

The overall highest and best use as improved of the property is to demolish the house and sell the land as a commercial lot, because the land value as commercial lot ($850,000 ) is more than then the total of demolishing cost and existing value (800,000+25,000= $825,000).

However, if the demolition costs rose to $55,000, the highest and best use as improved would be the existing residential use, because the market value as a commercial lot ($850,000) would not exceed the total of demolishing cost and existing value of this property as a house ($855,000).

Question 11

explain site (land) valuation

Answer 11

Difference between land and site

A separate step in the valuation model

A step for applying certain approach (Cost approach)

The most used valuation method: direct comparison

Question 12

The choice of valuation method mainly depends on

Answer 12

Property type to be valued
Availability of data

see slide 19 :)

Question 13

explain reconciliation of value

Answer 13

Reach the final valuation by considering the valuations derived from each approach
For example, let’s say:
Valuation under direct comparison = $800,000
Valuation under cost approach = $750,000

What is the reconciled value?
Simply take the average = $775,000
($800,000 + $750,000) / 2
Valuer determines the final value considering the applicability of each approach

Question 14

when to use sales comparison

Answer 14

Sufficient data on recent market transactions

Most suitable for single family residential property

Question 15

when not to use sales comparison

Answer 15

When little or no comparable evidence is available

Maybe no market……

Question 16

sales comparison process

Answer 16

1. Researching Transactional Data
2. Verifying transactional data
3. Selecting units of comparison
4. Analysing and adjusting comparable sales
5. Reconciling value

Question 17

explain step one researching transactional data

Answer 17

What transactional data are we looking for?
-Actual transactional price, recent, comparable property
Primary sources of data include: Public records, commercially available data, published news articles, interviews with market participants

Question 18

explain step 2: verifying transactional data

Answer 18

Valuers should verify information with a party to the transaction to ensure its accuracy and to gain a insight into the motivation behind each transaction.
To avoid inbreeding data
Check for arm’s length transaction

Question 19

explain step 3: selecting units of comparison

Answer 19

The components into which a property may be divided for the purposes of comparison e.g. total property price, price per square metre, price per square feet, price per room

e.g. property price / price per square meter

Question 20

explain step 4 adjustment process:

Answer 20

Compare each comparable independently with the subject property
Objective: calculate the adjusted sales price for each comparable by adjusting for differences
Key to remember:
If element of comparable is superior – SUBTRACT
If element of comparable is inferior – ADD

Question 21

do comprable examples

Answer 21

philly kane + poppy andrews

Question 22

limitations of sales comparision

Answer 22

(1) depend on the availability and accuracy of comparable transactional data
(2) Selections of comparable subject, elements and adjustment value are subject to discretionary judgement of valuer